Question & Answer

Compare and contrast how a Land Rover SUV and a Mercedes-Benz sedan are treated under the luxury auto rules. Also include a discussion of the similarities and differences in available §179 expense.

On January 1, 2015, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2017, by grantees still in the employ of the company, and expiring December 31, 2021. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $350,000. On April 1, 2016, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was $35 per share on this date. On March 31, 2017, 12,000 options were exercised when the market price of the common stock was $40 per share. Instructions Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2015, 2016, and 2017.

Hendrickson Corporation reported net income of $50,000 in 2014. Depreciation expense was $17,000. The following working capital accounts changed. Accounts receivable $11,000 increase Available-for-sale securities 16,000 increase Inventory 7,400 increase Nontrade note payable 15,000 decrease Accounts payable 12,300 increase Compute net cash provided by operating activities.

Gottlieb Co. owes $199,800 to Ceballos Inc. The debt is a 10-year, 11% note. Because Gottlieb Co. is in financial trouble, Ceballos Inc. agrees to accept some property and cancel the entire debt. The property has a book value of $90,000 and a fair value of $140,000. Instructions (a) Prepare the journal entry on Gottlieb’s books for debt restructure. (b) Prepare the journal entry on Ceballos’s books for debt restructure.

Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full at the start of the boating season, April 1, 2015. Slips for the next season may be reserved if paid for by December 31, 2014. Under a new policy, if payment is made by December 31, 2014, a 5% discount is allowed. The boating season ends October 31, and the marina has a December 31 year-end. To provide cash flow for major dock repairs, the marina operator is also offering a 20% discount to slip renters who pay for the 2016 season. For the fiscal year ended December 31, 2014, all 300 slips were rented at full price. Two hundred slips were reserved and paid for the 2015 boating season, and 60 slips for the 2016 boating season were reserved and paid for. Instructions (a) Prepare the appropriate journal entries for fiscal 2014. (b) Assume the marina operator is unsophisticated in business. Explain the managerial significance of the accounting above to this person.

Assuming Alexa receives $20,000 in gross rental receipts, answer the following questions:

Look ahead to Table 3.1. It shows the income elasticity of demand for various foodstuffs. Explain the difference in the figures for milk, fish and fruit juice..

When might a new partner have an upward basis adjustment following the acquisition of a partnership interest?

An extruder barrel has a diameter of 110 mm and a length of 3.0 m. The screw channel depth = 7.0 mm, and its pitch = 95 mm. The viscosity of the polymer melt is 105 Pa-s, and the head pressure in the barrel is 4.0 MPa. What rotational speed of the screw is required to achieve a volumetric flow rate of 90 cm3 /s?

A part to be turned in an engine lathe must have a surface finish of 1.5 µm. The part is made of a aluminum. The cutting speed is 1.5 m/s and the depth is 3.0 mm. The nose radius on the tool = 1.0 mm. Determine the feed that will achieve the specified surface finish.

Presented below are a number of facts related to Weller, Inc. Assume that no mention of these facts was made in the financial statements and the related notes. Instructions Assume that you are the auditor of Weller, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items. (a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted. (b) Equipment purchases of $170,000 were partly financed during the year through the issuance of a $110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at $60,000. (c) Weller has reported its ending inventory at $2,100,000 in the financial statements. No other information related to inventories is presented in the financial statements and related notes. (d) The company changed its method of valuing inventories from weighted-average to FIFO. No mention of this change was made in the financial statements.

1.    : A survey found that 69 percent of MBA students view maximizing shareholder value as the primary responsibility of a company. The Business Roundtable’s new Statement on the Purpose of a Corporation said that five major stakeholders should receive equal attention. With which view do you agree? Why?

Recently, property/casualty insurance companies have been criticized because they reserve for the total loss as much as 5 years before it may happen. The IRS has joined the debate because it says the full reserve is unfair from a taxation viewpoint. What do you believe is the IRS position?

Why are revenue and expense accounts called temporary or nominal accounts?

If this ‘fair’ solution were adopted, what effect would it have on the industry MC curve in Figure 8.3?

On March 1, 2014, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to the construction period. 2014 2015 2016 Costs to date $ 600,000 $1,560,000 $2,100,000 Estimated costs to complete 1,400,000 520,000 –0– Progress billings to date 1,050,000 2,000,000 3,000,000 Cash collected to date 950,000 1,950,000 2,850,000 Instructions (a) Compute the amount of gross profit to be recognized each year, assuming the percentage ofcompletion method is used. (b) Prepare all necessary journal entries for 2016. (c) Prepare a partial balance sheet for December 31, 2015, showing the balances in the receivables and inventory accounts.

Describe the pultrusion process

Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value ordinary shares. The bonds are converted on December 31, 2014. The bonds payable has a carrying value of $1,950,000 and conversion equity of $20,000. Record the conversion using the book value method.

1.      : What social values are present in Guitarras Torres, that seem different from U.S. social values (see Exhibit 4.4 and Exhibit 4.5)? Explain.

(Looking at the Maths) What is the profit-maximising price if MC = MR = £12 and PεD = –2?

During 2012, Robin Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2012. The building was completed on December 31, 2013, at a cost of $320,000 and was placed in service on January 2, 2014. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value. Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2014 appears below. Salaries and Other Expenses Number Employee (excluding Building of Projects Benefits Depreciation Charges) Completed projects with long-term benefits 15 $ 90,000 $50,000 Abandoned projects or projects that benefit the current period 10 65,000 15,000 Projects in process—results indeterminate 5 40,000 12,000 Total 30 $195,000 $77,000 Upon recommendation of the research and development group, Robin Wright Tool Company acquired a patent for manufacturing rights at a cost of $88,000. The patent was acquired on April 1, 2013, and has an economic life of 10 years. Instructions If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements? (a) The company’s income statement for 2014. (b) The company’s balance sheet as of December 31, 2014. Be sure to give account titles and amounts, and briefly justify your presentation.

Taveras Enterprises provides the following information relative to its defined benefit pension plan. Balances or Values at December 31, 2014 Projected benefi t obligation $2,737,000 Accumulated benefi t obligation 1,980,000 Fair value of plan assets 2,278,329 Accumulated OCI (PSC) 210,000 Accumulated OCI—Net loss (1/1/14 balance, –0–) 45,680 Pension liability 458,671 Other pension plan data for 2014: Service cost 94,000 Prior service cost amortization 42,000 Actual return on plan assets 130,000 Expected return on plan assets 175,680 Interest on January 1, 2014, projected benefi t obligation 253,000 Contributions to plan 93,329 Benefi ts paid 140,000 Instructions (a) Prepare the note disclosing the components of pension expense for the year 2014. (b) Determine the amounts of other comprehensive income and comprehensive income for 2014. Net income for 2014 is $35,000. (c) Compute the amount of accumulated other comprehensive income reported at December 31, 2014.

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What kind of pension plans do Coca-Cola and PepsiCo provide their employees? (b) What net periodic pension expense (cost) did Coca-Cola and PepsiCo report in 2011? (c) What is the year-end 2011 funded status of Coca-Cola’s and PepsiCo’s U.S. plans? (d) What relevant rates were used by Coca-Cola and PepsiCo in computing their pension amounts? (e) Compare the expected benefit payments and contributions for Coca-Cola and PepsiCo.

As discussed in the chapter, an important consideration in evaluating current liabilities is a company’s operating cycle. The operating cycle is the average time required to go from cash to cash in generating revenue. To determine the length of the operating cycle, analysts use two measures: the average days to sell inventory (inventory days) and the average days to collect receivables (receivable days). The inventory-days computation measures the average number of days it takes to move an item from raw materials or purchase to final sale (from the day it comes in the company’s door to the point it is converted to cash or an account receivable). The receivable-days computation measures the average number of days it takes to collect an account. Most businesses must then determine how to finance the period of time when the liquid assets are tied up in inventory and accounts receivable. To determine how much to finance, companies first determine accounts payable days—how long it takes to pay creditors. Accounts payable days measures the number of days it takes to pay a supplier invoice. Consider the following operating cycle worksheet for BOP Clothing Co.   These data indicate that BOP has reduced its overall operating cycle (to 261.5 days) as well as the number of days to be financed with sources of funds other than accounts payable (from 78 to 63 days). Most businesses cannot finance the operating cycle with accounts payable financing alone, so working capital financing, usually short-term interest-bearing loans, is needed to cover the shortfall. In this case, BOP would need to borrow less money to finance its operating cycle in 2014 than in 2013. Instructions (a) Use the BOP analysis to briefly discuss how the operating cycle data relate to the amount of working capital and the current and acid-test ratios. (b) Select two other real companies that are in the same industry and complete the operating cycle worksheet, along with the working capital and ratio analysis. Briefly summarize and interpret the results. To simplify the analysis, you may use ending balances to compute turnover ratios. [Adapted from Operating Cycle Worksheet at www.entrepreneur.com]

Distortion (warping) is a serious problem in fusion welding, particularly arc welding. What are some of the techniques that can be taken to reduce the incidence and extent of distortion?